Wealth Tax in Singapore—There has been a lot of discussion about whether or not Singapore should impose a wealth tax in recent months, and it has taken center stage in policy discussions here. In October 2021, Finance Minister Lawrence Wong spoke at the Singapore Economic Roundtable (Economic Roundtable) about Singapore’s need to defend against rising inequality and how the Ministry of Finance is now investigating alternatives to enhance Singapore’s wealth tax system.
Additional Buyer’s Stamp Duty (ABSD) rates for multi-property owners have just been raised to take effect on December 16, 2021, which may be seen as evidence of this shift in policy Governments around the world are dealing with dwindling public funds and a widening gap between the rich and poor, both of which are directly linked to the COVID-19 epidemic. This means that from 2000 to 2021, the super-total rich’s fortune surged nearly four-fold to US$191.6 trillion, and their proportion of global wealth jumped from 35 percent to 46 percent.
There are currently some aspects of Singapore’s present taxes similar to a wealth tax. This article examines how Singapore could investigate further options for taxing wealth.
Indirect wealth taxes, such as inheritance tax, capital gains tax, and real estate tax, can be as simple as a flat percentage tax on a person’s total net worth or as complex as a combination of these.
The New Wealth Tax in Singapore
In contrast to many other countries, Singapore does not levy any inheritance, estate, capital gains, or net wealth tax. Most of its progressive tax base is used to ensure that the wealthiest pay a larger share of their income in taxes. For example, the rates for personal income tax and buyer’s stamp duty are determined by the taxpayer’s income and the market value of the property they purchase. Taxing homeowners (who are often considered to be better off) in Singapore is done by the imposition of a property tax based on the yearly worth of the residence.
In addition, residential property taxes are subject to progressive tax rates depending on whether or not the owner occupies the property. An additional tax known as Additional Buyer’s Stamp Duty (ABSD) is levied on homeowners who can afford to buy numerous properties as an indirect wealth tax.
The widening wealth disparity in Singapore has prompted some to propose reinstituting the country’s estate duty scheme, which was abolished in 2008. Before the introduction of inheritance taxes, the goal of the tax was to rebalance wealth and prevent it from being concentrated in the bloodlines of the deceased’s family members for centuries to come.
The idea of reviving Singapore’s inheritance tax is appealing. Still, it would first have to address the fundamental flaws of the previous regime, which had made it mainly ineffectual at taxing the wealthy.
In the first place, the Estate Duty Act (Chapter 96) stated that lifetime contributions made more than five years before one’s death (assuming that the donor was excluded from any benefit under the gift) would not be liable to estate taxation. A person with substantial assets can avoid paying estate taxes by transferring the property five years or more before death. Because of this, the rule tended to reward those who were financially able to make substantial gifts early in their lives, which would typically be the case for the wealthiest.
How Do You Deal with the New Wealth Tax in Singapore
The wealthy might more easily dodge the tax by using tax planning, which is a service that is only available to those who hold assets at the time of their death. For example, a person who wishes to avoid estate tax by transferring their support to a lifetime trust or a holding corporation can do it. No estate tax would be owed because the deceased no longer possessed the assets when they died.
The former estate tax system had several problems, leading to significant administrative expenditures as a percentage of the revenue collected. In the 2008 Budget Statement, then-Minister for Finance Tharman Shanmugaratnam highlighted that the estate duty regime had, on average, generated S$75 million each year previous to its abolishment in 2008. Estate duty has been abolished in several jurisdictions worldwide, which makes sense given that many of these countries have comparable tax regimes.
Regarding reintroducing estate tax in Singapore, it is doubtful that the generous exemptions applied to the previous regime will be reinstated (specifically, the S$9 million exemption threshold for residential properties), as Singapore’s policy concerning residential ownership has changed since then. Therefore, any new regime of estate duty implemented would likely apply to a broader range of assets, if any were introduced at all (including residential property and extending potentially to digital assets, for example).
After all these factors are considered, any reintroduction of estate duty would undoubtedly have to consider the real risk of jeopardizing Singapore’s flourishing wealth management and private banking industry, which the abolishment of estate duty has primarily fueled since 2008. The imposition of an estate tax may deter wealthy individuals and families from securing their assets in Singapore, even if only temporarily.
The need for a wealth tax in Singapore has never been more substantial, especially in light of the country’s dwindling government coffers in the wake of the COVID-19 outbreak. Even if non-fiscal initiatives are found to be insufficient to address the inequality issue, the question that has stumped policymakers is the form in which the wealth tax should take and what lessons can be learned from the experiences of other jurisdictions worldwide so that Singapore’s tax system can be designed to ensure that the twin goals of fairness and fis are met. It’s not clear which way the government will go with this issue.
Still, wealth levies should be designed with extreme caution, as they could eventually become a blunt instrument that causes long-term collateral damage to Singapore’s economy and its allure for investment and asset management if applied carelessly.